Failure in Motion – The Demise of Facebook Right Before Our Eyes

When you study success and failure for as many years as I have, seeing failure in motion is a painful thing to witness.

For years I have been watching my favorite bookstore, Barnes and Noble, fail. Their path to failure has been so obvious to me, it hurt.

First, their fast asleep management did not see Amazon coming, until it was too late. Amazon very quickly gained control of the on-line book retail sector, while B&N was expanding their footprints in malls and colleges around the world, oblivious to what was going on within their very own industry.

Second, their business model attached itself to the hip of traditional publishers, ignoring the rapidly expanding self-publishing industry, which Amazon happened to be embracing.

B&N hasn’t gone under yet. It is desperately pivoting, shifting its focus away from bricks and mortar and to online sales. It is also playing catch up with Amazon by selling more and more books from self-published authors, both on-line and in its retail outlets. But the damage has been done and, I believe, failure is just a question of when, for B&N.

In hindsight, it’s easy to play the Monday-morning quarterback and criticize companies for their historically bad business decisions. It’s quite another thing, a great skill in fact, to identify failure as it is happening. And right now, we are witnessing failure in motion – at Facebook.

On January 11, 2018, Facebook altered its algorithm to prioritize content from friends, family and groups, at the expense of content from businesses.

In English – Facebook’s algorithm change makes it hard for businesses to push their ads through to Facebook users.

In more English – Business Facebook ads won’t be seen as much by Facebook users.

Now, if you’re a Facebook user, you are probably cheering. But, if you’re a business who wants Faceboook’s users to see their ads so they can sell their products to those users, well, you’re not so happy.

As business decisions go, this is a pretty dumb one. It almost certainly guarantees a significant loss in ad revenue for Facebook.

And we’re already beginning to see this domino effect of a wholesale decline in ad dollars manifest itself.

Online content providers receive ad money from businesses. Those businesses want anyone who reads the content to see their ads next to the content they are reading. So, those online content sites push their content through Facebook in various ways which include buying blocks of Facebook ads, which, in turn generates significant revenue for Facebook.

Because of this Facebook algorithm change, however, significantly fewer Facebook users will now be able to see those business ads. The businesses realize this and they are drastically cutting back how much money they are spending for Facebook ads with online content providers.

As a result, online content provider Facebook ad revenues are evaporating. Why would a business advertise on a content provider’s website knowing few, if any, Facebook users are going to see their ads?

In response, these online content providers are cutting back on how much money they spend with Facebook.

This Facebook strategy will ultimately translate into a significant loss in revenue for Facebook. How significant? That’s anyone’s guess.

Facebook is fairly well-diversified thanks to the numerous acquisitions its made over the years (Instagram, Whatsapp, and many others). But one thing is certain. Facebook’s core business, its Facebook ad business, has been wrecked by one very bad business decision – its algorithm change. My guess is that the loss in revenue will be so significant, Facebook’s ad revenue business will be unable to recover from its mistake.

If Facebook knew this algorithm change could have a significant negative impact on ad revenues, and I’m sure they did, then this has to go down in history as one of the dumbest business decisions in the history of business decisions.

Even worse, adding to this algorithm faux pas, Mark Zuckerberg has expressed a willingness to allow government oversight of Facebook – meaning Facebook’s CEO is OK with government dictating what Facebook can and can’t do.

What you are bearing witness to, my friends, is failure in motion.

Individuals and companies all make mistakes. The smart ones, however, realize their mistakes, quickly pivot, and avoid making similar mistakes in the future. The not-so-smart ones are blind to their mistakes, unable to pivot quickly enough, and ultimately fail. Facebook is on that path towards failure.

When you are a student of success and failure, as I am, watching failure in motion is painful. It will be painful to watch Facebook as it fails.

Comments

Another company that seems to be failing soon is Youtube. They don’t allow controversial content any more, they are deleting channels and demonitizing videos by the masses. Well people go to Youtube BECAUSE of the controversial content. People love drama. Other video platforms have built in the meantime and creators are transferring their content to these new platforms now. I think in a few years Youtube will have lost its predominant position and will have to share their audience with VIMEO and the likes.

Youtube and Facebook seem to walk towards the same destiny as My Space.

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